It’s the time of year for “The Talk”

By Anne Tergesen

With the holiday season now at hand, it’s an opportunity for adult children and their parents to finally have The Talk. You know the one: The awkward but necessary conversation about parental finances and whether there is room in the budget for everything from inheritances to elder-care.

The problem, of course, is that while adult children are anxious about their parents’ finances, no one is eager to talk about it. “Detailed conversations are not happening,” says Kathleen Murphy, president of Personal Investing at Fidelity Investments, which released a study today that documents the extent to which the two generations are failing to communicate on this topic.

According to Fidelity’s first-ever “Intra-Family Generational Finance Study,” 89% of families agree that health and elder care discussions are important. But only 10% of adult children believe the conversations they have held with their parents have been “very detailed.” Similarly, only 19% of children say the same about estate planning conversations, and only 11% of adult children feel they have discussed retirement readiness with their parents in detail.

It’s easy to understand why the information gap exists. After all, “these are awkward and potentially emotional conversations,” says Murphy. “They can get into touchy subjects like how long people are going to live, whether there is any evidence of cognitive impairment, and how much you can expect to receive in an inheritance.” Moreover, she adds, “parents don’t want to confront the fact that they may not be able to take care of themselves.”

There are other awkward factors in play, according to the survey: for example, 30% of parents say they don’t want their children to “overly rely on a potential inheritance”; and 40% of adult children say they don’t feel as if their parents’ finances are any of their business.

Still, if parents and children don’t communicate, it can lead to more than just anxiety. Adult children may not save enough if they have unrealistically high hopes for an inheritance. And some adult children who don’t know enough about their parents’ financial health may unnecessarily sacrifice financial goals to set money aside for their parents’ care. (In Fidelity’s survey: only 3% of parents said they expect to have to rely on their children for financial support, but almost 25% of children believe they will have to support their parents at some point.)

Not surprisingly, those who take the time to have these conversations tend to feel better. Fidelity said that 90% of the parents who have had such discussions with their adult children reported having “peace of mind.” Only 61% of parents who have not had this talk felt the same way.

One way to facilitate a conversation is for both generations to sit down with the parents’ financial adviser. In fact, 68% of the parents and 60% of adult children surveyed said they would feel more comfortable talking about the bottom line in the presence of an adviser. “Advisers can structure those conversations to keep focused on the data and keep the emotions out,” says Murphy.

At the very least, Fidelity recommends that parents tell their children where to find key documents, including account numbers and passwords, and create key estate planning documents, including living wills and health care proxies.

This is an updated version of an article that originally appeared on Encore on November 14, 2012.

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Encore looks at the changing nature of retirement, from new rules and guidelines for financial security to the shifting identities, needs and priorities of people saving for and living in retirement. Our lead blogger is editor Matthew Heimer, and frequent contributors include editor Amy Hoak, writer Catey Hill, and MarketWatch columnists Elizabeth O’Brien, Robert Powell and Andrea Coombes. Encore also features regular commentary from The Wall Street Journal retirement columnists Glenn Ruffenach and Anne Tergesen and the Director of the Center for Retirement Research at Boston College, Alicia H. Munnell.